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DeFi Decrypted: What is yEarn Finance and YFI

DeFi Decrypted: What is yEarn Finance and YFI

Explainers DeFi

14 Sep 2020

Once again, the DeFi space proves it is innovating its alternative finance model, with users now yield farming as a way to make more crypto with their existing crypto. At the center of this new earning model is yEarn Finance, a platform that offers automated yield farming strategies through multiple lending pools shifting between the most popular protocols like dYdX, Aave and Compound. It’s native governance token YFI quickly rose to fame after the coin surged over 3000% since it began trading in 2020.

yEarn was created by Andre Cronje early 2020, taking no outside investments and building the software himself. He’s even cautioned people that because he does everything himself with no formal auditing, there could be bugs and perhaps even costly errors. On Twitter he posted: “when I build software, I build it for myself. If you do insist on interacting with it, please use caution, there will be bugs.”

That was in the early days. Now the protocol has been handed over to the community and continues to be developed and improved at a rapid pace.

What yEarn Finance does for you

The platform offers an easy way for users to engage with a number of yield farming opportunities that exist across lending protocols in the DeFi ecosystem. Yield farming is a new way generate earnings with crypto holdings. It is also referred to as liquidity mining and can be compared to staking crypto as it works with liquidity providers adding funds to liquidity pools and earning rewards by doing so.

The DeFi space is built using the “money Lego” model where each protocol is able to build on top of another protocol. yEarn Finance is pushing this composability to the limit, changing the way investors earn crypto while holding assets. Idle crypto can now be put to work, at a scale that was previously not available with this degree of simplicity.

There are 4 main features the platform offers, with Earn being the primary one most users will be looking for. Through Earn, you can stake liquidity in any of the available vetted pools and the platform itself will perform profit switching between lending providers, moving your funds autonomously to maximize earnings and profits.

Currently Earn supports staking for DAI, USDC, USDT, TUSD, SUSD and wBTC. When you stake any of these tokens, say USDT, you get the interest-earning yUSDT in return. At any point in time, you can redeem your yUSDT and claim your rewards. In the meantime, yEarn Finance will be shifting your funds between lending protocols that offer the highest interest rates.

Yield farming does come with risk. If your collateral falls below the threshold set by the protocol, it may be liquidated on the open market which means there is a chance you lose your money. To avoid liquidation, you can more collateral. Over collateralization helps to reduce the risk of liquidating large amounts of funds during volatile market crashes, but protection from losing money is not guaranteed.

What is YFI?

YFI is the native token of the yEarn Finance platform and it’s used for governance purposes. Andre Cronje specifically stated the token was valueless and not meant for traders to make profits. It was created strictly for governance activities with a total of 30K tokens in total supply meant for activities such as voting on protocol development decisions and listings of liquidity pools.

However, it seems the market disagrees with the founder as YFI was listed by several exchanges. After that, things really took off for the token as the value increased 3583% since it began trading this year at $813 on July 21, with a current valuation of $29,940 on September 10.

The future for the yEarn Finance

The real goal of the founder was to make it easier for people to engage in DeFi protocols. He’s said many of the protocols are simply too complicated for the average person to understand, requiring way more time than most people have to really understand what’s going on. In addition to DeFi projects, we also recommend evaluating the top 5 Web3 projects.

A better user experience would definitely be welcomed by many people new to DeFi and those that are still on the fence about it. It’s true for anything but especially needed in the crypto space – a simple user interface that does much of the thinking for the user will help boost mainstream adoption.

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